Letshego Africa Holdings, a Botswana-based financial services group, is seeking P800 million from shareholders to reduce its costly borrowing and build a more diversified funding base. The company plans to issue approximately 1.096 billion new shares at 73 thebe each. This move is equivalent to one new share for every 1.984722 shares held, offering a 13.1 percent discount to its 30-day volume-weighted average price.
The fundraising is part of Letshego's strategy to shift away from reliance on commercial banks and development finance institutions. Instead, the company is increasing its use of deposits and listed debt. However, this transition has come against a backdrop of high borrowing costs. Earlier this year, some commercial paper issued by Letshego carried interest rates above 19 percent. More recent instruments have been priced between 10 percent and 12.5 percent, indicating that funding conditions have begun to ease.
Most of the proceeds from the share issuance will be used to reduce holding-company borrowings of about P3.19 billion and settle debt owed to certain shareholders. On a pro forma basis, the transaction would lower borrowings by about P770 million and reduce annual interest costs by approximately P93 million. This significant reduction in borrowing costs is expected to positively impact Letshego's financial performance.
The offer has significant shareholder backing, with Botswana Public Officers Pension Fund, Letshego's largest shareholder with a 37.2 percent stake, agreeing to underwrite the entire issue. This provides a backstop for shares not taken up by other investors. Botswana Insurance Holdings Limited owns a further 27.5 percent of the company, demonstrating strong support from major shareholders.
The capital raising is part of a broader funding strategy for Letshego, which has applied for a Botswana banking licence. This move could allow the company to mobilise local deposits and reduce its dependence on wholesale funding. A banking licence would represent a significant shift for Letshego, which began almost three decades ago as a Botswana payroll lender.
Securing a banking licence would enable Letshego to adopt a broader and potentially cheaper funding model. This strategic move aligns with the company's goal of diversifying its funding base and reducing costly borrowing. By mobilising local deposits, Letshego aims to decrease its reliance on expensive wholesale funding and commercial paper.
The successful completion of the share issuance and potential acquisition of a banking licence are crucial for Letshego's future growth and financial sustainability. With strong shareholder support and a clear strategy for reducing funding costs, Letshego is poised to achieve its objectives and enhance its position in the Botswana financial services market.
Key points
- Letshego seeks P800 million through a share issuance to reduce costly borrowing and build a diversified funding base.
- The company aims to lower borrowings by about P770 million and reduce annual interest costs by approximately P93 million.
- Letshego has applied for a Botswana banking licence to mobilise local deposits and reduce its dependence on wholesale funding.
